South Africa - Overview of economy

Emerging from a long period when it was a pariah nation because of its racial policies, South Africa is an attractive emerging economy that is both modern and diversified. Paradoxically, the country still exhibits many of the characteristics of a less developed nation, including a distorted distribution of wealth and a thriving informal sector economy whose interactions are outside the law. The agricultural, industrial, and service sectors are well developed, however, and government plans to improve services and economic access to the poor and dispossessed offer the promise of modernizing the lagging elements of the economy.

The dominant forces which shaped South Africa's economy in the modern era exhibited themselves in 8 main periods. From 1910 to 1922, British influence dominated in economic and political terms, and a racially-segregated community was structured. When economic nationalism was born from 1922 to 1933, white mineworkers and farmers tried to establish a welfare state in South Africa. Between 1933 and 1948 English political power dominated again, and industrialization in South Africa occurred with less government interference. From 1948 to 1960 was the period of Afrikaner ascendancy (Afrikaners were the descendants of the original Dutch and German settlers). Between 1960 and 1973, black urbanization became important as a strong social force, and attempts were made to impart further institutional force to apartheid (the nation's official policy of racial segregation) via the homeland policies of President Verwoerd. The sixth period, between 1973 and 1984, was characterized by industrialization and the realization that the racial policy was economically damaging to the country. The seventh period stretches from 1984 to 1994, and can be seen as a period of transition during which economic growth decreased, mainly due to economic sanctions placed on South Africa by many nations. The eighth period started when apartheid ended and a democratic election took place in April 1994. The new government elected at this time initiated economic reforms intended to establish South Africa as a dynamic and more internationally competitive economy.

The free elections of 1994 became possible thanks to changes that had been occurring for years, as the government slowly removed many of the barriers to black political and economic participation. A new constitution, approved in 1993, followed by a plea by African National Congress (ANC) president Nelson Mandela (the nation's foremost black political leader) for foreign nations to lift sanctions led to a pledge of US$850 million in economic aid for South Africa by the International Monetary Fund (IMF). International financing sources saw the IMF funding as a signal to international investors that South Africa was a safe place in which to invest. International investment bankers and large Wall Street investment companies began trading with South Africa, thus opening the way to the current economic era.

The development of the South African economy has seen a long-term transfer from production based on agriculture to production based on industries. Once this transition had been made there was a period of sustained accumulation of physical and human capital. Consumers' spending patterns changed from spending on basic items and essential goods to spending on diverse manufactured and luxury items.

The nation's geography and topography have a significant influence on the country's economic development. The fact that South Africa has vast mineral resources is one of the reasons for its economic survival. In many cases, the country possesses large percentages of the world's known reserves of certain minerals, for example 88 percent of platinum group metals, 83 percent of manganese, and 72 percent of chromium reserves.

Since its early history, South Africa was shaped by its location on major global trade routes. In fact the country's oldest city, Cape Town, grew from a catering station for passing ships, established almost 350 years ago by the Dutch East India Company. Given that relationships between South Africa and other African countries have improved, the country's location on the African continent has earned it the title, "Gateway to Africa." South Africa has a rich variety of natural assets, making it an important eco-tourist destination. The wide variety of habitats accommodate numerous animal species.

South Africa has vast farmlands and climatic conditions that are ideal for agricultural activities. Even though South Africa has an erratic climate, its relatively large supply of arable land and modern methods employed in commercial agriculture are major reasons why it is largely self-sufficient in food supply.

Despite many good economic indicators in South Africa, though, the crime rate has risen to unacceptable levels. Particularly the high occurrence of violent crimes has led to the widespread belief that the police, judicial system, and correctional services are unable to cope with the problem. Large-scale black-market activities further fuel the crime wave in South Africa. Affirmative action, high taxes, and the rising crime rate have contributed to a renewed skills drain as many highly trained workers leave the country, a movement of workers the government needs to stop in order to preserve and develop the tax base. The loss of economically active persons in professional, technical, and managerial positions is particularly discomforting. Moreover, in South Africa, AIDS is a fast growing problem. More than 3.2 million South Africans are infected and living with the disease, with an estimated 1,500 infections taking place everyday. This health crisis is slowing South Africa's economic development because it decreases the number of people who can work.

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